U.S. Lands Trade Deal with S. Korea

U.S., South Korea complete free-trade deal
By Howard Schneider
Washington Post Staff Writer
Friday, December 3, 2010; 8:52 PM
U.S. and South Korean negotiators agreed Friday to a free-trade deal that the Obama administration hopes will increase American exports by billions of dollars annually and create momentum for a broader push on free trade in 2011.

The pact is the administration's first major foray into the arena of free-trade politics, and officials said it may be followed by efforts to have Congress approve pending deals with Panama and Colombia, and reinvigorate the larger Doha round of global trade talks.

The deal marks a victory for President Obama, who was widely criticized after failing to secure the pact during his Asia trip after last month's midterm elections.

"Today's agreement is an integral part of my Administration's efforts to open foreign markets to U.S. goods and services, create jobs for American workers, farmers and businesses, and achieve our goal of doubling of U.S. exports over five years," Obama said in a statement Friday night.

The South Korea agreement was first negotiated by the George W. Bush administration, but during follow-up negotiations the Obama administration won further concessions considered important to American automakers. Those include a slower reduction of U.S. tariffs on imported South Korean vehicles and a provision under which South Korea will exempt up to 25,000 of any American company's cars from its strict safety standards, as long as they meet similar U.S. regulations.

In a concession to South Korea's internal politics, a U.S. demand for unfettered access to the South Korean beef market was set aside for now, leaving in place that country's ban on the import of older U.S. meat. Linked to an earlier scare over mad-cow disease, the beef restrictions are emotionally charged in South Korea, but the existing limits are of little economic importance to a U.S. cattle industry fighting to regain a market largely lost to Australian producers in recent years.

The changes, coupled with the promised elimination of stiff South Korean tariffs on U.S. farm products and the prospect of a more open market for U.S. financial, engineering and other service companies, was enough for Obama to decide to try to win congressional approval of the South Korea agreement next year.

Announced on a day when the U.S. unemployment rate ticked higher, the agreement sets the stage for a debate in Congress over whether free trade with a major Asian nation could deliver the promised benefits or would instead drain U.S. jobs.

It is a sensitive matter at a time when concern is high over China's huge trade surplus with the United States, allegations of unfair trade practices on its part, and a sense that Asian nations have reaped benefits of free trade without truly opening their markets.

In South Korea's case, the Obama administration says the agreement will add in excess of $10 billion annually in U.S. exports and create employment for thousands. South Korea is the United States' seventh-largest trading partner, and a free-trade agreement between the two would be the largest such deal since the North American Free Trade Agreement in the early 1990s.

Business groups quickly rallied around the pact. Ford Motor said it was satisfied that it will help balance the lopsided trade in motor vehicles between the two countries. Tens of thousands of South Korean cars are shipped to the United States each year, but only a few thousand U.S.-made vehicles move in the other direction. Ford had been the most vocal corporate holdout on an agreement that was pushed aggressively by the U.S. Chamber of Commerce and major American companies.

"These new provisions provide Ford greater confidence" that South Korea's car market, heavily dominated by national champions such as Hyundai, will be more open, Ford chief executive Alan Mulally said in a statement.

As a candidate, Obama was highly critical of existing free-trade agreements - including the then-pending South Korea pact - and said that as president he would ensure that future trade treaties did more for U.S. workers and include stronger labor, environmental and other safeguards.

The financial crisis and recession fueled doubts about those agreements and their value to blue-collar America, but also prompted Obama to refocus on trade as a way to generate jobs. His administration has set a goal of doubling exports, and groups such as the Chamber have pushed in particular for a deeper trade engagement with Asia. The region is growing rapidly, its middle class is expanding, and trade agreements are being signed at a furious pace.

One factor pushing the South Korean-U.S. negotiations was the recent approval of a trade pact between South Korea and the European Union and the prospect that manufacturers in Germany and elsewhere would soon see lower tariffs and other advantages over U.S. competitors.

Critics, however, say the administration has reneged on its campaign line and argue that the agreement should include stricter labor and investment rules.

"I had hoped for more from this White House, which campaigned on a need to change the way we negotiate trade agreements," said Rep. Michael H. Michaud (D-Maine), head of a House trade policy group. He pledged to work to defeat the deal. Sen. Max Baucus (D-Mont.) expressed disappointment over the remaining barriers to U.S. beef and said he would continue to defend American ranchers' interests.

Leaders of the two countries had hoped to finish the negotiations during a November meeting in Seoul. The talks foundered, an embarrassment to both Obama and South Korean President Lee Myung-bak. But administration officials say the outcome vindicated their strategy of holding out.

"We were willing to walk away from what we thought was an insufficient package," said a senior U.S. official, who spoke on the condition of anonymity. "What we have achieved is not just coming to an agreement, but coming to one where you will have prominent Democratic, Republican and labor support. It changes the games with the U.S. reasserting itself."